Herbalife Skips a Knockout Blow

The portfolio manager noted that while Herbalife characterized many of Ackman's points as "myths" and "misleading," the company didn't make more convincing claims of "libel" and intentionally misleading investors.

In a CNBC interview following the presentation, Herbalife CEO Johnson acknowledged a Wednesday Wall Street Journal report that the Securities and Exchange Commission has opened an inquiry into Herbalife, but declined to comment on any specifics, or any prospective litigation against Ackman.

Herbalife's presentation that the vast majority of distributors use the company's products for 'self-use,' and data it unveiled, which showed new distributors have a chance to earn money from being a distributor seriously undercut Ackman's characterization of the company.

Still, the use of independent research to rebut Ackman's claims is likely to draw a counter-punch by the hedge funder.

Dan Loeb's Third Point Capital said on Wednesday it has bought nearly 9 million shares in Herbalife, in a move that cuts against a short position in the embattled supplements seller by Bill Ackman of Pershing Square Capital Management.

Third Point's long position amounts to over 8% of Herbalife's stock, while Ackman holds a short position over double in size.

A 13-D filing with the Securities and Exchange Commission shows that Third Point has acquired 8,900,000 Herbalife shares, representing an 8.24% economic interest in the company. The filing does not state intent by Third Point in its large position.

"The pyramid scheme is a serious accusation that we have studied closely with our advisors. We do not believe it has merit," wrote Loeb.

According to Wednesday Wall Street Journal reports citing sources, the SEC has opened an inquiry into Herbalife.

Ackman, who unveiled his bet against Herbalife to CNBC on Dec. 19, subsequently told Bloomberg News that part of his intent in detailing the short trade just ahead of the New Year was to undermine confidence among Herbailife's distributors prior to their 2013 re-up, potentially toppling a pyramid scheme he alleges the company orchestrates.

A more than three hour long presentation made at the Ira Sohn Conference a day later detailed Ackman's reasoning behind his short trade and a web site created by the Pershing Square lists a 300-page plus powerpoint presentation made by the hedge fund.

Herbalife hired financial advisor Moelis & Co. and law firm Boies Schiller, as part of its defense, and CEO Johnson said Moelis helped in constructing the company's Jan. 10 investor presentation.

Wall Street has also provided Herbalife support against Ackman's claims. Herbalife shares have gained back most of their ground since Ackman unveiled his short trade on Dec. 19.

Both funds, they say have made bets in favor of Herbalife and against Ackman.

"Despite beguiling and specious reasoning, Ackman will fail to influence/cause a material regulatory response or a HLF distributor exodus," wrote Robert Chapman, in a Jan. 1 blog post.

More directly, analysts such as Tim Ramey of D.A. Davidson& Co. simply refute Ackman's allegations that Herbalife could be deemed a pyramid scheme by regulators such as the Federal Trade Commission or the SEC.

While Ackman argued 90% of Herbalife's profits come from distributors and not bona fide retail demand, Ramey of D.A. Davidson wrote in a January note to clients the majority of Herbalife's earnings come from retail demand, disqualifying it as a pyramid scheme.